Summary
- A sharply lower U.S. Dollar is starting to affect the view foreign investors have of American money center banks.
- The Northeast-centered coronavirus outbreak and economic shutdown during March-May 2020 has undoubtedly lowered loan repayment ability and asset quality for the region's banks.
- Slack trading momentum in the equity during the summer is worrisome going into the seasonally weak autumn months for the stock market.
Citigroup (C) has been lagging the performance of the S&P 500 index badly since March. Not coincidentally, the weak trading action in Citigroup (Citibank) is highly correlated with problems in the value of the U.S. dollar since late March. As banks are the largest owners of dollar-denominated assets in the world, and Citigroup is one of the largest U.S. banks, the "global" worth of its asset base has begun to rapidly decline. Citigroup held some $2.3 TRILLION in dollar assets at the end of June. And, this huge balance was backed by just $173 billion in common equity (book value) and $147 billion in tangible book value, making Citigroup one of the most leveraged (risky during recession) money center banks in August 2020.
I have talked about the ultra-weak technical picture for Citigroup in several articles since May. My first mention was May 3rd here, a story discussing its rotten trading momentum alongside Wells Fargo (WFC). A second article here from June 3rd had the company lumped into a group of the worst performers in the S&P 100 universe. And, the technical trading backdrop has remained near the bottom of the barrel in relation to other stocks throughout the summer.
Traditionally, Citigroup and other large U.S. banks have had equity performance issues when the value of our accounting currency has been under pressure. The U.S. dollar has zig-zagged lower by 10-12% vs. other fiat currencies like the euro, Yen, Pound and Yuan since the peak spike in pandemic fear regarding the COVID-19 virus and economic shutdown during March. The subsequent record money printing campaign engineered by the Federal Reserve bank has quickly created relative selling pressure in bank shares, as investors question the long-term viability and worth of dollars in international commerce and trade. Already since early March, Citigroup has sharply underperformed both the S&P 500 index of U.S. businesses and its peer financial/bank industry grouping on the magnitude of 20-40%.
Headquartered in New York, the coronavirus outbreak in the city and surrounding area has also raised questions on debt repayment and loan quality, a major component of company assets measured in the hundreds of billions. I wrote an exclusive article for Seeking Alpha on M&T Bank (MTB) in May questioning loan loss reserves and book value quality in the aftermath of the Northeast-centered pandemic of March-April. Citigroup will have similar issues the remainder of 2020 into 2021 from its local loan portfolio assets. High unemployment and slow to return to normal circumstances for businesses/consumers will likely be a bigger long-term loan repayment headache than was expected several months ago for the whole nation.
